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Credit card issuers are marketing masters, and they know how enticing rewards credit cards are. But before you’re taken in by flashy signup bonuses or seemingly high rewards rates, we suggest that you ask yourself whether you’re financially able to handle a card with a high interest rate. Here are some tips to help you decide, and some gimmicks to look out for when choosing the right rewards credit card.
Are you ready for a rewards credit card?
To determine whether a rewards credit card is right for you, ask yourself: Do I carry a balance month-to-month? If so, chances are you’ll want to steer clear of rewards cards in favor of low APR cards that can minimize your interest payments. You may want to look at credit unions. Though their rewards programs are somewhat lackluster compared to big banks’, they tend to offer lower APRs, especially for those with bad credit. If you already have credit card debt or plan to make a big purchase, look for a card with a 0% APR promotion.
But if you don’t carry a balance, and if you’ve got good or excellent credit, then you should definitely consider a rewards credit card that’ll pay you back for the purchases you make every day. You can trade in a low APR, which you don’t need anyway, for cash. When choosing the right rewards credit card, though, there are a couple gimmicks to look out for.
Red flags in a rewards credit card
When it comes to rewards programs, the devil’s in the details. If you read closely, you might find restrictions that can lower your rewards rate by as much as 50%.
Annual or quarterly rewards caps: Some credit cards limit the amount of rewards you can earn in a quarter or year. For example, many of the rotating 5% cards cap your bonus earnings at $1,500 per quarter.
Expiring rewards: Some credit card rewards (airline credit cards are notorious for this) expire after two to five years, and some expire in as little as one year. Look at your rewards programs to ensure that your rewards don’t go stale.
Redemption thresholds: Unless you have a cash back credit card, you’ll have to convert your rewards points into something useful, be it a gift card, a check, or an airline ticket. A few rewards programs require you to accumulate 10,000 to 25,000 points before getting the full value.
Annual fees: We won’t make the argument you think we’ll make. Many people automatically reject a credit card with an annual fee, even though the extra rewards and/or signup bonus might well make the card the best choice. We suggest you do the math for yourself, and avoid dismissing annual fee cards out of hand.
Cards that don’t play that game
After that disheartening list of tricks, here are a couple of cards that are honest, salt-of-the-earth rewards earners.
Capital One® Venture® Rewards Credit Card: The Capital One® Venture® Rewards Credit Card is one of the simplest rewards credit cards around. It earns 2 miles for every dollar you spend, which equates to a 2% rewards rate if you redeem for travel. Miles don’t expire and aren’t subject to blackout dates. Instead, you redeem them for a statement credit against any travel expense. The card comes with an annual fee of $0 for the first year, then $95. If you spend $509.22 on airfare, hotel accommodations and gas for the rental car, for example, you can redeem 50,922 miles to wipe out the charge. It has a great signup bonus: Enjoy a one-time bonus of 50,000 miles once you spend $3,000 on purchases within 3 months from account opening, equal to $500 in travel. Plus, it has no foreign transaction fee.
Chase Sapphire Preferred® Card: The Chase Sapphire Preferred® Card gives 2 points per dollar spent on travel and dining out and 1 point per dollar spent on all other purchases. Its Ultimate Rewards Points don’t expire and you can redeem as few as 2,000 points for $20 cash. Points are unlimited, and you aren’t subject to any annual rewards caps. Under its sign-up bonus, you Earn 50,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening. That's $625 toward travel when you redeem through Chase Ultimate Rewards®.